* Shares jump 10 pct after announcement
* Production costs post-demerger to fall to 120-140 cents/lb
* Working capital payment lower than expected
* Demerged mines could get more support from government
(Adds comments from company and analyst, adds details)
By Silvia Antonioli
LONDON, July 23 Copper producer Kazakhmys
will transfer some of its less-profitable assets to a
private company owned by two of its shareholders as the company
is broken up in an attempt to improve its performance.
The Kazakh mining company has been grappling with rising
production costs, falling copper grades and weaker prices in the
last few years and proposed in February to split the company in
It said on Wednesday it had entered into a definitive
agreement to transfer its older mines and processing facilities
in the Zhezkazgan and central regions to Cuprum Holding - a new
vehicle owned by Kazakhmys' largest shareholder and former
chairman Vladimir Kim and by the company's chief operating
officer Eduard Ogay.
London-listed Kazakhmys would be renamed KAZ Minerals after
the demerger. It has agreed to pay Cuprum about $240 million so
the private firm can operate the assets it will receive. That
figure was below analysts' expectations of $300-400 million.
"Given the lower liquidity concerns and the more certain
outlook, the investibility of the stock is significantly
improved," Liberum analysts said in a note.
Kazakhmys shares jumped almost 10 percent after the
announcement and were up 7.5 percent by 1041 GMT.
"With the spin-off you create one group of assets that will
run probably better within a private entity, where you don't
have the pressure of returning cash to shareholders," said
Kazakhmys head of investor relations John Smelt.
"A private firm can be run slightly differently, perhaps
getting more government support and do projects that create
employment but don't necessarily make much money."
TWO BETTER THAN ONE
In June the Kazakh government agreed to reduce tax rates on
Kazakhmys' older assets that are being spun off, in a move seen
as a sign of support for the company's restructuring plan.
A spin-off of the more capital and labour-intensive assets
represents a more acceptable option for the government than the
shutdown of some operations and consequent job cuts, analysts
Following the demerger Kazakhmys plans to focus on its
assets in the east region of the country and the Bozymchak mine
in Kyrgyzstan, and on its Aktogay and Koksay growth projects, to
become an initially smaller but more cost-efficient producer.
Thanks to such growth projects, it plans to increase its
output 32 percent by 2018, compared with last year, to reach
production of about 350,000 tonnes of copper equivalent, mostly
from open-pit mines.
After the demerger, Kazakhmys' production costs would fall
to about 120-140 cents per pound of copper equivalent from 220
cents for the group last year, it said.
The transaction is conditional on shareholders' approval and
regulatory consent. Kazakhmys expects the split to be concluded
by the end of the year.
Kim has indicated he intends to keep his stake in Kazakhmys
once the demerger is completed. Ogay - who has a stake of less
than 1 percent in the company - did not specify whether he would
keep his holding, but Kazakhmys said he would be leaving his
executive role to take a management job at Cuprum.
(Editing by Erica Billingham and Pravin Char)